The Property-Based Social Order Is Being Destroyed by Central Banks
Readers of the Mises Wire are no doubt familiar with the negative consequences of central banking and the inflationary capacity of fiat currency and how such a system drives malinvestment and leads to boom-bust cycles. Not only does the business cycle lead to the misallocation of resources from their natural ends of the structure of production, but it also drives resources into financialization, rather than the “real” economy. This financialization, which has been taking place since at least the First World War, has served, over time, to structurally undermine the morality of property in the eyes of the general public. As the increased popularity of socialism, at least in rhetorical terms, among the youth indicates this “evaporation” of property may reach a critical mass within the not-too-distant future.
The Social Effects of Financialization
In his book The Present Age, sociologist Robert Nisbet traces the origin of financialization to the First World War and the decision to finance the war via credit, rather than taxation. He argues that the other negative social effects of the war, combined with the flush of cash and credit into the system drastically altered American’s traditional propensity to save and instead to spend. These changed habits led to the “roaring twenties” where instead of acquiring wealth through hard work and thrift and a focus on producing goods and services, Americans turned to financial means of acquiring wealth.
This began what Nisbet calls the “evaporation of property” where ownership of hard tangible goods has evolved into the “soft” ownership of highly liquid and mobile forms of property such as stocks. This concept of evaporating property originated in the work of Joseph Schumpeter, an economist and contemporary of Mises in Austria (though not a member of the Austrian school) who identified and explained this phenomenon in his classic work Capitalism, Socialism and Democracy.1 Schumpeter criticizes the shareholder mechanism of ownership for separating legal ownership from those responsibilities and actions that are traditionally associated with it. He argues that the owners of publicly traded firms are comprised of three groups of people: the salaried executives and managers, the large shareholders, and the small shareholders, and that “no element of those three groups … takes the attitude” that is generally meant by the word property. The employees, he states, often do not identify with the shareholding interests, and the large shareholders, even if they behave how financial theory predicts, are “at one remove from both the functions and attitudes of an owner.” Schumpeter considers small shareholders to be the least tied to ownership, saying that they often care little and if anything are mobilized by others for “their nuisance value.” He goes on to say that in the end, small shareholders end up feeling ill used and “almost regularly drift into an attitude hostile to ‘their’ corporation
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